Tuesday, March 18, 2008

New LevX index has a bad first day

(FT Alphaville) Timing is everything. And Bear Stearns and friends made sure that the new and improved iTraxx LevX index by Markit got off to a sickly start.

The index of leveraged loan derivatives, an indicator for the underlying value of European high-yield loans, was launched on Monday after a number of false starts. The new series, expanded to contain 75 names in the senior index and 45 in the junior, was meant to bring the measure into line with its more-liquid US equivalent, the LCDX.

The hope was that the new non-cancellable index - where names are simply replaced as loans are repaid early or refinanced - would boost liquidity in both the index and its constituents, helping to revive interest and potentially easing the hangover of loans structured before last summer’s credit meltdown.

The Series 2 LevX got off to a shaky start, with the senior index falling to about 96.62 cents in the dollar after its first day’s trading and its junior finishing up at 94.90.

The coupon levels set, points out regular reader Monkey, already reflected the new credit era. The senior index is paying a generous 525bp. Series 1, issued two years ago, offered just 170bp.

Leveraged loan derivative indices have moved off their lows from late February on both sides of the Atlantic - and the LevX series 1 senior index, with just 26 names, finished up last Friday at 91.5 after trading towards about 90 last month.

In the US, the LCDX traded briefly back above 92, but is again testing lows in the early 90s.

Update - more information on the Series 2 LevX is available in this presentation, including the names in the new senior and subordinated indices. More detail available here.
Markit has said that LevX volumes were more than €2.8bn on the first day of trading. According to Morgan Stanley, trading on the first index averaged €1bn a day, meaning they are ahead of target to double weekly trading to €10bn.

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